In addition, the grant of such options must be disclosed to the shareholders because these options: (1) erode the incentives of executives and employees to work for the future of the company because such options are at least in part a bonus for past service; (2) impose a cost on the company because the company is committed to selling its stock at a discounted price; and (3) reduce the earnings of the company.As alleged in the complaint, the defendants fraudulently circumvented these accounting and disclosure rules by secretly backdating the grant documents and by issuing false proxy statements and periodic public filings misrepresenting that Comverses stock options were granted at fair market value.WASHINGTON Three former executives of Comverse Technology Inc.
For example, in 1999 the defendants set the option price $35 a share below the fair market value on the day the options were actually granted.
Alexander allegedly took for himself more than 300,000 of those backdated options, for a paper profit of over $11 million.
The tech industry's stock option backdating scandal appears to be gathering steam.
Last week, federal investigators announced criminal charges against former executives of Brocade Communications Systems, and they're hinting that more cases may be on the way.
However, as alleged in the complaint, Alexander, Kreinberg and Sorin fraudulently backdated the options awarded under each of these stock option plans to days when the stock was trading at periodic low points.
As a result, the options were granted below fair market value, that is, below the trading price on the date the options were actually granted.Additionally, Kreinberg logged onto Comverses computer and attempted to alter a database to hide the slush funds existence.The charges in the complaint are merely allegations, and the defendants are innocent unless and until proven guilty.The grant of options below fair market value carries significant disclosure, accounting and tax consequences.For example, the value of such options must be recorded as a compensation expense against the companys revenue and therefore, can significantly reduce the companys reported earnings.The charges were announced by Deputy Attorney General Paul J. Mauskopf of the Eastern District of New York and Acting Assistant Director James Chip Burrus of the FBI.